As the market continues to trade with volatility, some investors have gone in search of stability among strong dividend stocks that consistently pay out passive income. Even when there's not a lot of volatility in the market, dividend stocks can create durable streams of income. As the years pass, that income will eventually add up, which is why it's always a good time to be a dividend investor.
Legendary investor Warren Buffett and his company Berkshire Hathaway have long known this and consistently put a portion of their investment funds toward dividend stocks. That has helped Buffett and Berkshire regularly beat the broader market over the years.
Let's take a closer look at one of Buffett and Berkshire's highest-yielding dividend stocks that can help you earn $10,000 in passive income.
A diverse and growing REIT
STORE Capital (STOR) is the only real estate investment trust (REIT) in Berkshire's roughly $348-billion equities portfolio. REITs are known for their strong dividend yields because to qualify for special tax rates, REITs must pay out at least 90% of their taxable income to shareholders annually.
STORE Capital targets triple-net lease Single-Tenant Operational Real Estate properties, hence its name. Under this model, STORE buys the properties from business owners and then leases them back to the owners. Under a triple-net lease plan, the business owner/tenant is responsible for keeping the property in good shape, making repairs and renovations, and covering the insurance, property taxes, and other expenses.
This model essentially means that Store is not a landlord but more of a lender that provides its clients with a cheaper and longer-term substitute to buying real estate outright or traditional renting. This model can also be lower-risk because STORE is not responsible for many of the costs required to maintain the physical properties and can lock into long-term leases. STORE also has a very diverse portfolio, having invested close to $10.4 billion in more than 2,965 properties across 49 states and 550 customers. STORE plans to continue this strategy, as evidenced by its robust pipeline.
Image source: Store Capital Corp.
The company has not only been growing its investment portfolio but profits as well. Adjusted funds from operations (FFO) came in at close to $158 million in the first quarter of 2022, up about $32 million year over year. Total revenue also grew from roughly $182 million in the first quarter of 2021 to roughly $222 million in the first quarter of 2022. And the valuation is quite reasonable. With STORE guiding for adjusted FFO to come in at $2.20 at the midpoint of its range in 2022, that means the stock is trading at about 12.5 times forward adjusted FFO.
How to make $10,000 of passive income
STORE Capital currently has an excellent annual dividend yield of close to 5.5%. That means if you invest roughly $200,000, you would make more than $10,000 in annual income. If you don't have $200,000 lying around to invest, another option is to invest $38,000, which would yield about $2,090 in annual dividend income. Hold STORE for five years, and that would add up to $10,450.
